Meta chief Zuckerberg asks for patience after AI irritates investors | Technology News

By Kurt Wagner

Mark Zuckerberg asks investors to remain patient. Again.

After Meta Platforms Inc. revealed it would spend billions of dollars more than expected this year — fueled by investments in artificial intelligence — the company’s CEO did his best to placate Wall Street. The spending forecast, coupled with slower-than-expected sales growth, sent shares down as much as 19 percent in extended trading.

It was a familiar argument for Zuckerberg, who has previously said that the company’s futuristic technology bets will eventually pay off — and that savvy shareholders should stick around.

“Smart investors see that the product is evolving and that there is a clear monetizable opportunity even before revenue materializes,” he said on a conference call following the company’s earnings report. Meta quarter. The company already credits AI for some of its recent user growth and advertising success, pointing to improvements in its recommendation algorithms.

Facebook’s parent company is pouring more resources into artificial intelligence, which requires significant investments in computing power – part of an arms race with rivals from Alphabet Inc. to Microsoft Corp. for supremacy in this rapidly developing technology. Zuckerberg warned that investments would increase “significantly” and that it would take a long time to generate returns for the social media company – perhaps years – but he urged them to see the long-term benefits that AI has to offer.

Zuckerberg took a similar approach when Meta moved toward building the so-called Metaverse and other futuristic technologies, like VR headsets and smart glasses. These efforts have been costly. Reality Labs, the Meta division leading those efforts, lost $16 billion in 2023. But Zuckerberg says the group’s progress over the past year — particularly its success with its AI chatbot and glasses Ray-Ban smart watches – have made him convinced that additional investment is necessary.

“We have become more optimistic and more ambitious about AI,” Zuckerberg said. “We have reached a point where we have shown that we can create cutting-edge models and become the world’s leading AI company. And this opens up many additional opportunities, beyond those that are most obvious to us.

Achieving this vision will be expensive. The Menlo Park, Calif.-based company increased its cost estimates for the year and now estimates capital spending will be between $35 billion and $40 billion. Previously, he estimated that spending on things like servers, AI hardware and data centers would be between $30 billion and $37 billion.

“We expect capital spending to continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts,” the CFO said. Susan Li in a statement, referring to 2025.

At the same time, the social media company also forecast revenue between $36.5 billion and $39 billion for the second quarter, with the mid-range of that forecast being lower than the average analyst estimate.

Those numbers overshadowed an otherwise strong first quarter, with revenue of $36.5 billion, an increase of more than 27 percent from the same period last year. Profit which more than doubled to reach 12.4 billion dollars.

The stock was up 39 percent so far this year as of market close and was trading near last month’s all-time highs, partly reflecting enthusiasm for AI. Meta has been one of the best-performing stocks among its Big Tech peers.

“Despite all of Meta’s bold AI plans, it cannot afford to take its eyes off the core of the business – its core advertising business,” Sophie Lund-Yates, an analyst at Hargreaves Lansdown, said on Wednesday. “This doesn’t mean ignoring AI, but it does mean spending should be targeted and aligned with a clear strategic vision.”

During the previous quarter, Meta announced a $50 billion stock repurchase, in addition to the company’s first-ever quarterly dividend. It was an effort to appease investors frustrated by the company’s aggressive spending on technology that has yet to fully bear fruit.

In recent months, Zuckerberg has made AI a priority, refocusing Meta on technology after OpenAI launched its ChatGPT chatbot in 2022, sparking a frenzy of competition and development among big tech companies. Meta has begun inserting AI into every facet of the business, from Instagram and Facebook to its smart glasses.

The company announced plans in January to build a new $800 million data center and is also developing its own chips for artificial intelligence services. Meta is also working on several new iterations of its large language model, known as Llama, to power chatbots and other AI services.

The company reiterated its broader spending plans for 2024, saying it would shell out between $96 billion and $99 billion for the calendar year, up slightly from a low-end target of $94 billion to $99 billion. . He previously said much of that would go toward infrastructure costs, in addition to long-term bets on augmented and virtual reality.

Meta’s mixed report comes the same day President Joe Biden signed a bill that would force TikTok’s parent company, ByteDance Ltd., to sell the popular video service or face a ban in the United States. The potential elimination of a major competitor could provide a boost to Meta’s advertising business since its Reels short video offering is a TikTok clone.

Reels now account for about 50% of the time people spend on Instagram, Li said on a call with analysts. Asked specifically about the TikTok legislation, she said it was too early for the company to understand the potential impact.

Meta has had a turbulent few years in recent years, with a surge in users and activity on the platform during lockdowns, followed by a subsequent pullback of advertising in 2022. Meta has also gorged itself on hiring when times were good, leading to some 10,000 job losses. in 2023, a period that Zuckerberg has dubbed “the year of efficiency.”

These painful measures paved the way for the significant profit increase the company is currently experiencing. The first quarter turnover was the highest ever recorded during this period. More and more people are also coming back to Meta products.

Zuckerberg said the Threads app, similar to the old Twitter and launched last July, now has more than 150 million monthly active users, including Taylor Swift.

First publication: April 25, 2024 | 07:00 STI